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Cryptocurrency Ethereum Classic Software Remains Under Siege

(Bloomberg) -- Ethereum Classic, an offshoot of the second-largest cryptocurrency, remains under attack by some of the so-called miners whose servers support the underlying network operations, according to the cooperative that funds development of the digital coin.

Coinbase Inc., one of the world’s largest cryptocurrency exchanges, said on Monday that it had found “deep reorganizations” of the Ethereum Classic blockchain. As a result some $1.1 million in digital coins has been spent twice. That can indicate a so-called 51 percent attack, in which some computers supporting a network falsify transactions.

“It did happen, everything Coinbase published is accurate," Anthony Lusardi, U.S. director of the Ethereum Classic Cooperative, said in a phone interview Tuesday.

Coinbase has halted Ethereum Classic transactions, and other exchanges are likely following suit. Ethereum Classic, which is the 18th largest coin by market value according to data provider Coinmarketcap.com, has dropped about 7.3 percent since last week.

“The lasting damage for ETC will come from the exchanges that will deem the coin insecure and delist it," Emin Gun Sirer, co-director of Initiative for Cryptocurrencies and Smart Contracts at Cornell University, said in an email. "This might trigger selling when the exchanges re-enable trades. Just how much is anyone’s guess -- it’s a fascinating experiment overall, and we will see just how much of the market value is based on fundamentals and technical strength, which evidently and incontrovertibly went out the window."

The incident comes several weeks after the main development team supporting Ethereum Classic disbanded amid a lack of funding. In a Medium post yesterday, developer Donald McIntyre, who used to work for the shuttered group, called the attack "a significant setback" but said said a mining algorithm change could help protect the network in the future.

Ethereum Classic is only the latest victim of 51-percent attacks. Smaller coins like Bitcoin Gold and ZenCash have already suffered them.

With coins double spent, the Ethereum Classic blockchain has failed at its essential task and the currency has no future, said Kyle Samani, managing partner of crypto hedge fund Multicoin Capital.

“I’m surprised that ETC is not down 50 percent or more,” he said in an email. “The most probable explanation is that the biggest holders store their assets off exchange,” leaving them unable to transfer them back and sell, he said.